112 T.C. No. 3
UNITED STATES TAX COURT
WILLIAM AND HELEN WOODRAL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6385-98. Filed January 12, 1999.
Ps submitted to the IRS a request for abatement of
interest relating to employment taxes. R issued to Ps
a notice of final determination not to abate interest.
Ps filed a petition for review of R's failure to abate
interest.
Held: R's failure to abate the assessments of
interest under sec. 6404(a), I.R.C., was not an abuse
of discretion.
Held, further: Sec. 6404(e)(1), I.R.C., does not
authorize R to abate assessments of interest on
employment taxes; therefore, R's failure to abate the
assessments of interest under sec. 6404(e), I.R.C., was
not an abuse of discretion.
Robert C. Platt, for petitioners.
Usha Ravi and Ronald G. Dong, for respondent.
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OPINION
VASQUEZ, Judge: On March 26, 1998, the Commissioner issued
a notice of final determination denying petitioners' claim to
abate interest. Petitioners timely filed a petition under
section 6404(g)1 and Rule 280. Unless otherwise indicated, all
section references are to the Internal Revenue Code as amended,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
The issue for decision is whether the Commissioner committed
an abuse of discretion under section 6404 by failing to abate
assessments of interest relating to employment taxes.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
their petition, petitioners resided in Ceres, California.
During 1988, petitioner2 and his brother Robert Woodral were
general partners in a partnership known as Woody's Transport (the
partnership). On July 17, 1988, the partnership dissolved.
Under the agreement to dissolve the partnership, Robert Woodral
agreed to pay any existing tax liabilities.
1
Sec. 6404(g) was redesignated sec. 6404(i) by the
Internal Revenue Service Restructuring & Reform Act of 1998, Pub.
L. 105-206, secs. 3305(a), 3309(a), 112 Stat. 743, 745.
2
References to "petitioner" are to petitioner William
Woodral.
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On March 30, 1989, respondent received an Employer's Annual
Federal Unemployment Tax Return (Form 940) for the period ending
December 31, 1988, from Woody's Transport showing an unpaid tax
liability of $295.3 On May 8, 1989, the tax liability of $295
and an interest liability of $10 were assessed.
On May 11, 1989, respondent received an Employer's Quarterly
Federal Tax Return (Form 941) for the period ending June 30,
1988, from Woody's Transport showing an unpaid tax liability of
$30,785. On June 26, 1989, the tax liability of $30,785 and an
interest liability of $3,967 were assessed. On September 4,
1989, based on a corrected tax return received by respondent, the
assessed, unpaid tax liability was reduced from $30,785 to
$8,258, and $2,608 of interest was abated.
Robert Woodral filed the Forms 940 and 941. At the time he
filed the returns, he did not pay the taxes that were owing.
Robert Woodral never informed petitioner that there were any
outstanding tax liabilities.
In or about July of 1995, petitioner received a Final Notice
(Notice of Intent to Levy) dated July 20, 1995, from respondent.
This was the first notification petitioner received that the
partnership owed any tax or that he was liable for any of it.
On February 15, 1996, petitioner paid the $295 and $8,258
tax liabilities. Petitioner did not pay the interest
attributable to either of the tax liabilities.
3
For convenience, all figures are rounded to the nearest
dollar.
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On December 2, 1996, petitioners filed a petition (the 1996
petition) with the Court requesting the abatement of penalties
and interest relating to employment taxes for the taxable periods
ending June 30 and December 31, 1988 (the 1988 employment taxes).
On March 3, 1997, respondent received a Claim for Refund and
Request for Abatement (Form 843) from petitioners.
On March 17, 1998, respondent filed a motion to dismiss for
lack of jurisdiction (motion to dismiss) the 1996 petition on the
grounds that a notice of final determination not to abate
interest (notice of final determination) on the 1988 employment
taxes had not been issued to petitioners.
On March 26, 1998, the Commissioner issued a notice of final
determination to petitioners related to the 1988 employment
taxes. The Commissioner denied petitioners' request for
abatement.
On April 3, 1998, petitioners opposed respondent's motion to
dismiss and lodged with the Court a first amended petition for
review of failure to abate interest under section 6404 (the
amended petition).
In an order dated April 9, 1998, the Court granted
respondent's motion to dismiss the 1996 petition. Furthermore,
we ordered the amended petition be filed as petitioners' petition
for review of failure to abate interest under section 6404, and
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we ordered the portion of the amended petition that seeks an
abatement of penalties be stricken for lack of jurisdiction.4
Discussion
Respondent argues (1) to the extent that petitioners' claim
for abatement of interest arises under section 6404(a), the Court
lacks jurisdiction to review respondent's denial of that claim,
(2) if the Court concludes that it has jurisdiction over
petitioners' claim under section 6404(a), there was no abuse of
discretion under section 6404(a) because the assessments of
interest were not excessive in amount, assessed after the
expiration of the period of limitations, or erroneously or
illegally assessed, and (3) there was no abuse of discretion
under section 6404(e) because the Commissioner is not authorized
under section 6404(e)(1) to abate interest assessed with respect
to employment taxes. Petitioners contend that the Court has
jurisdiction pursuant to section 6404(g), and the Commissioner
committed an abuse of discretion by failing to abate the interest
under either section 6404(a) or (e).
In construing section 6404, our task is to give effect to
the intent of Congress. We begin with the statutory language,
which is the most persuasive evidence of the statutory purpose.
United States v. American Trucking Associations, Inc., 310 U.S.
4
As we stated in our order dated Apr. 9, 1998, the Court
lacks jurisdiction to review the Commissioner's failure to abate
penalties. Sec. 6404(g) only provides the Court jurisdiction to
review the failure to abate interest, and sec. 7436 does not
provide the Court with jurisdiction because this case does not
involve a redetermination of employment status.
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534, 542-543 (1940); Hospital Corp. of Am. v. Commissioner, 107
T.C. 116, 128 (1996). Phrases must be construed in light of the
overall purpose and structure of the whole statutory scheme.
Dole v. United Steelworkers of Am., 494 U.S. 26, 35 (1990).
The plain meaning of statutory language ordinarily is
conclusive. United States v. Ron Pair Enters., Inc., 489 U.S.
235, 241-242 (1989); Hospital Corp. of Am. v. Commissioner,
supra. If the language of a statute is clear, we look no further
than that language in determining the statute's meaning. See
Sullivan v. Stroop, 496 U.S. 478, 482 (1990); United States v.
Ron Pair Enters., Inc., supra at 241. A court looks to
legislative history only if the statute is unclear. Blum v.
Stenson, 465 U.S. 886, 896 (1984); United States v. Lewis, 67
F.3d 225, 228-229 (9th Cir. 1995).
I. Jurisdiction Under Section 6404(g)
The Tax Court is a court of limited jurisdiction and may
exercise jurisdiction only to the extent authorized by Congress.
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The question of
the Court's jurisdiction is fundamental and must be addressed
when raised by a party. Id. at 530.
Section 6404(g) provides in pertinent part:
The Tax Court shall have jurisdiction over any action
brought by a taxpayer who meets the requirements
referred to in section 7430(c)(4)(A)(ii) to determine
whether the Secretary's failure to abate interest under
this section was an abuse of discretion, and may order
an abatement, if such action is brought within 180 days
after the date of the mailing of the Secretary's final
determination not to abate such interest. [Emphasis
added.]
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Section 6404(g) clearly grants the Court jurisdiction to
review the Commissioner's failure to abate interest under all
subsections of section 6404 and does not limit the Court's
jurisdiction to review cases arising only under section 6404(e).
Respondent, on brief, acknowledges that the language of section
6404(g) does not specifically limit the Court's jurisdiction to
the review of denials of claims for abatement brought under
section 6404(e) but argues that the legislative history
demonstrates that it was the intent of Congress to impose such a
limit on the Court's jurisdiction.
Respondent's argument fails. The language of the statute is
clear; therefore, we do not look to the legislative history to
determine the statute's meaning.5 See Sullivan v. Stroop, supra;
United States v. Ron Pair Enters., Inc., supra at 241-242; see
also Blum v. Stenson, supra; United States v. Lewis, supra.
Respondent's interpretation of section 6404(g) is contrary
to the clear language of the statute. We reject respondent's
contention that we lack jurisdiction to review the denial of
petitioners' request for abatement of interest to the extent
their claim arises under section 6404(a). In light of
petitioners' timely petition for review, we hold that petitioners
5
Even if we were to look at the legislative history,
however, it does not contradict the language of the statute.
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properly invoked the Court's jurisdiction pursuant to section
6404(g).6 See Rule 280(b)(2).
II. Abuse of Discretion
The Commissioner's power to abate an assessment of interest
involves the exercise of discretion, and we shall give due
deference to the Commissioner's discretion. See Mailman v.
Commissioner, 91 T.C. 1079, 1082 (1988). In order to prevail, a
taxpayer must prove that the Commissioner exercised this
discretion arbitrarily, capriciously, or without sound basis in
fact or law. See id. at 1084. Petitioners bear the burden of
proof. Rule 142(a).
A. Section 6404(a)
Section 6404(a) provides that the Commissioner is authorized
to abate the unpaid portion of the assessment of any tax or any
liability in respect thereof that is (1) excessive in amount, (2)
assessed after the expiration of the period of limitations
properly applicable thereto, or (3) erroneously or illegally
assessed. See also sec. 6601(e)(1) (stating that "any reference
in this title", except subchapter B of Chapter 63 (i.e., sections
6211-6216) to "any tax" also refers to interest imposed by
section 6601 on such tax). Section 301.6404-1(c), Proced. &
Admin. Regs., provides, in pertinent part:
6
While the Court has jurisdiction pursuant to sec. 6404(a)
and (g) to review the Commissioner's failure to abate interest on
employment taxes, sec. 6404(a) and (g) does not provide the Court
with jurisdiction to review a failure by the Commissioner to
abate an assessment of employment taxes.
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(c) Except in the case of income, estate, or gift
tax, if more than the correct amount of tax, [or]
interest, * * * is assessed but not paid to the
district director, the person against whom the
assessment is made may file a claim for abatement of
such overassessment. Each claim for abatement under
this section shall be made on Form 843. * * *
In the petition, petitioners stated that the interest at
issue is the statutory interest attributable to the correct
employment taxes that were reported on the Forms 940 and 941
filed with respondent. Petitioner paid those taxes on February
15, 1996. Petitioners argue, however, that respondent's failure
to act (i.e., waiting 7 years to contact petitioner regarding the
taxes and interest owed) was illegal; therefore, petitioners
contend that the amounts of interest assessed are erroneous and
in excess of the proper amount.7 Respondent contends that the
assessments of interest were not excessive, assessed after the
expiration of the period of limitations, or erroneously or
illegally made.
On brief, petitioners cite no authority to support their
claim that the assessments of interest were excessive, erroneous,
or illegal. Additionally, the evidence does not establish that
the interest was excessive in amount, assessed after the
expiration of the period of limitations properly applicable
thereto, or erroneously or illegally assessed. See In re Burns,
974 F.2d 1064, 1066 (9th Cir. 1992).
7
Petitioners, however, do not assert that respondent
calculated the amount of the interest incorrectly.
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Based on the foregoing, we conclude that the Commissioner
did not commit an abuse of discretion by failing to abate the
assessments of interest under section 6404(a).
B. Section 6404(e)
Section 6404(e)(1) provides, in pertinent part, that the
Commissioner may abate the assessment of interest on: (1) Any
deficiency attributable to any error or delay by an officer or
employee of the Internal Revenue Service (acting in his official
capacity) in performing a ministerial act, or (2) any payment of
any tax described in section 6212(a) to the extent that any error
or delay in such payment is attributable to such officer or
employee being erroneous or dilatory in performing a ministerial
act.8
Section 6211 defines a deficiency as the amount by which the
tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 of
the Code exceeds the amount of such tax shown on the taxpayer's
return and the amount of such tax previously assessed. Section
6212(a) also refers to deficiencies with respect to taxes imposed
by subtitle A or B, or chapter 41, 42, 43, or 44 of the Code.
These subtitles and chapters of the Code cover taxes on: Income;
estates, gifts, and certain generation-skipping transfers; public
8
In 1996, sec. 6404(e) was amended under sec. 301 of the
Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457
(1996), to permit respondent to abate interest with respect to an
"unreasonable" error or delay resulting from "managerial" and
ministerial acts. The new provision applies to interest accruing
with respect to deficiencies or payments for tax years beginning
after July 30, 1996; therefore, it is not applicable to the case
at bar.
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charities; private foundations and certain other tax-exempt
organizations; qualified pension, etc., plans; and qualified
investment entities. See Speers v. United States, 38 Fed. Cl.
197, 201 (1997). The Code contains the provisions related to
employment taxes in subtitle C, and subtitle C is not mentioned
in section 6211 or section 6212(a).
Based on our review of section 6404(e) and the Code sections
it references, we hold that the Commissioner lacks the authority
to abate assessments of interest on employment taxes under
section 6404(e). As the Commissioner has no authority to abate
assessments of interest on employment taxes under section
6404(e), the Commissioner could not have committed an abuse of
discretion--a person with no discretion simply cannot abuse it.
To reflect the foregoing,
Decision will be entered
for respondent.